BTIG Upgrades MFA, MITT to Buy; Cuts Ellington Financial

BTIG turned bullish on two residential mortgage REITs Tuesday and downgraded a third. The firm raised MFA Financial and MFA's peer MITT to Buy from Neutral, citing deeply discounted valuations in the residential credit mREIT space. Ellington Financial was cut to Neutral from Buy.

MFA trades at roughly 85% of book value. MITT sits at about 80%. Both are well below where they traded through most of 2024, when the Federal Reserve was still cutting rates. BTIG said the discount has widened enough to price in a recession that may not arrive. The upgrade rests on book value upside.

Ellington gets the downgrade on a narrower margin of safety. Its portfolio leans more toward non-agency mortgages and credit risk, leaving less room if spreads widen again. The stock trades at about 90% of book. BTIG said the risk-reward is more balanced at current levels.

The three stocks cover different slices of the same trade. MFA and MITT focus on agency-backed mortgages and government-guaranteed paper. Ellington takes more credit exposure. All three benefit when rates fall and prepayments slow. Ellington's book moves more with spread widening.

BTIG's call is a bet the worst of the rate shock is behind the group. Mortgage REITs got hammered in 2022 as the Fed jacked rates up 500 basis points. They recovered some ground in 2023. The sector is still down about 30% from its 2021 peak.

For MFA and MITT, the deep discount means a path to 15-20% total return if book values hold. The downside is already mostly priced in if spreads blow out again. That is the buy case. MFA carries an AlphaScala score of 61 out of 100, reflecting a moderate risk-reward profile.

Ellington's neutral rating says the discount is fair but not a gift. A narrower discount leaves less room for error. BTIG did not set new price targets in the note. The firm said it would update targets after the next earnings cycle.

MFA and MITT both report in late April. Ellington reports in early May.